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France’s shock absorber
The embattled French premier tells David Buchan, Andrew Gowers and Quentin Peel of his plans for economic recovery
Saturday morning in the Matignon. Relaxed in designer jeans, jacket and tie amid the 18 th century gilt, Alain Juppé betrays no hint of perturbation about the mountainous challenges he faces.
In little more than a year, the French prime minister must steer his country into economic and monetary union (Emu) and his centre-right coalition to election victory. Can he do both ? "This is my double objective", he says.
France, he confidently predicts, will make its rendez-vous with Germany in Emu. He is well aware of the stakes : "I don't want to be immodest, but I think France is the key. If France is not ready in time [to enter Emu in 1999], there will no Emu for a long period."
And the spring 1998 parliamentary elections ? To win, he has to shake voters out of what he describes as the electorate's chronic mood of gloom and reduce record unemployment. "I am confident we will succeed," he said.
How can this be ? In his first 19 months of power, Mr Juppé has plumbed the depths in the opinion polls ; attracted fierce criticism from his government's own backbenches and suffered waves of strikes. Last week his first attempt to privatise the Thomson electronics group failed.
But Mr Juppé says in the French system headed by the president, "the Prime minister is there to absorb a certain number of shocks". The criticism does not faze him.
"When I don't change the decisions I've announced, I'm accused of being arrogant and stubborn. When I modify them to take account of people's reactions then I'm charged with retreating. Either way I'm criticised."
But what about his unpopularity in the polls ? "I don't know. Everyone I see is very nice and polite… I don't feel rejected, the mail I get encourages me. So I end up wondering whether the polls really reflect the reality."
Accurate or not, the polls have undoubtedly encouraged critics within his own political camp, comprising the Gaullist RPR and the centre-right UDF federation.
"Some have called for my replacement, but always from the wings, never from the rostrum [of the National assembly]," admits Mr Juppé. "We had a period of some tension, some agitation, a few weeks ago. But things have got back into order.
"The [government] majority has never failed me on, for instance, the budgets or the laws on social security and creation of [private] pension funds."
Moreover, he insists, government economic policy commands wide support. "There is among the experts quasi-unanimity that [our] economic policy, the mix of budgetary and monetary policy in France, is the right one, regardless of Maastricht. Apart from the far left or far right, I don't hear anyone say we should increase the deficit and the debt by increasing public spending."
Look at the benefits, he says : "Inflation has been mastered, foreign trade is recording remarkable surpluses, the franc is stable, interest rates have come down faster than they have ever done in so short a time. We are at the same level as Germany even on long-term rates where there has traditionally been a sort of risk premium in France's disfavour.
"People's purchasing power, contrary to what they think, is rising, not falling, and consumption is holding up well. Our growth target for next year of 2.3 per cent to 2.4 per cent should be met."
But there are two black spots. The first is investment, which is stubbornly refusing to pick up despite lower interest rates and high corporate liquidity.
Mr Juppé blames "this climate of depression and anxiety" – though he turns out to be no better, than anyone else at analysing rather just describing the current French gloom. He notes curious opinion poll findings that while a majority feels the country is going downhill, most individual French believe their own lot has improved.
The other cloud is "the setback on unemployment", staying at a record 12.6 per cent in October.
He is now pursuing two new tracks. One is to simplify and decentralise job creation schemes so that company bosses can understand, use them and adapt them to local circumstances.
Local mayors should see a self-interest in such initiatives, he says, "because a mayor who succeeds in placing the young in jobs can be assured of re-election". He should know, for Mr Juppé not only hopes to hang on to his job as prime minister he will be seeking re-election as mayor of Bordeaux in 2000.
The other track is to encourage a more flexible labour market. The prime minister knows this is a minefield in France where even debating the issue is "sometimes a bit explosive". But he says : "We have got to reflect on this simple question posed by many company heads. They say we have work, we could hire more young people, but we don't do it because it costs too much, is too complicated and constraining."
As Mr Juppé describes it, the challenge bears no resemblance to the one that faced Margaret Thatcher in 1980s Britain. It doesn't require what Mr Juppé calls "her authoritarianism" to break old fashioned union power.
In any case, he shies away from drawing lessons from modern Anglo-Saxon labour practices, stressing instead the need to remove legal and financial disincentives that deter companies from hiring more people.
These are long-term remedies. For the next year, Mr Juppé is banking heavily on economic growth – to provide jobs and help reduce the public deficit.
But is he really getting the deficit down ? In 1997, public finances are being assisted by the controversial windfall of a FFr37.5bn ($7.2bn) pension-related payment from state-owned France Télécom.
Mr Juppé rejects suggestions that using this money to reduce the deficit represents sleight of hand. ''This is a definitive receipt of the state. What do you want me to do with it ? Not take account of it ?"
He claims the only legitimate question "is what will we do in the following year [1998] to find an equivalent receipt" to keep the deficit down. However, he is confident of being able to do that, even accelerating tax cuts in 1998 if growth is strong enough.
In fact, Mr Juppé now seems less exercised about getting France into monetary union than about what happens when it gets there, particularly about Germany's terms for a stringent "stability pact" with set financial penalties for deficit overshoots.
"There seems to be the fear among some Germans that the euro will be less good than the D-Mark, so they desire safeguards everywhere," says the Prime minister. "I think this should be settled through confidence-building measures, and not over-rigid mechanisms."
Arguing for Europe's politicians to have some guiding influence over the future European Central Bank (ECB), Mr Juppé gives a foretaste of the position he and president Chirac will take at today's Franco-German summit in Nuremberg – another expression of what he calls a crucial partnership.
"The basis of the French position is that we don't want all decisions on economic, budgetary, fiscal and monetary policy to be shaped by a technocratic, automatic system under the sole authority of the ECB," he says. "That is not our concept of democracy."
Germany is suspicious of anything smacking of political interference with the ECB. But Mr Juppé says he wants to see, at the European level, the sort of regular political dialogue between government and central bank that exists in Germany as well as in France and the UK.
France's "problem is that in the actual mechanism of Maastricht we do not see how the dialogue between the political power and the central bank will be organised. The central bank cannot decide everything solo, applying a set of figures. There needs to be an interlocuteur, a political power, the government leaders of the euro-zone who would meet periodically to fix broad lines of economic policy, dialogue with the central bank and give their opinion."
The French proposal "is in the spirit of the treaty", says Mr Juppé. "What we need to do in 1997 is to settle this mechanism – before we shift to the final stage of monetary union."
One job of this "political power" would be to influence exchange rate policy for the euro, an issue spotlighted recently by former president Valéry Giscard d'Estaing. Mr Juppé vehemently rejects his call for France to devalue the franc against the D-Mark and says he has himself drawn attention to the dollar's undervaluation against the franc. But the fact that Mr Giscard d'Estaing has strongly emphasised this point is perhaps "not unuseful" in sending a message across the Rhine.
And what of the Prime minister himself ? Does he really expect to be still occupying his elegant office in a year's time ? "Unless break a leg or something falls on my head, yes."